Strategy Implementation and Resource Allocation

Strategy implementation:

Translation of chosen strategy into organizational action so as to achieve strategic goals

and objectives. The manner in which an organization should develop, utilize, and amalgamate
organizational structure, control systems, and culture to follow strategies that lead to competitive
advantage and a better performance.

McKinsey framework for strategy Implementation:

 Strategy: the plan devised to maintain and build competitive advantage over the
competition.
 Structure: the way the organization is structured and who reports to whom.
 Systems: the daily activities and procedures that staff members engage in to get the job
done.
 Shared Values: called "superordinate goals" when the model was first developed, these
are the core values of the company that are evidenced in the corporate culture and the
general work ethic.
 Style: the style of leadership adopted.
 Staff: the employees and their general capabilities.
 Skills: the actual skills and competencies of the employees working for the company.

Strategy implementation process:

 Determine strategy and communicate measurable objectives

 Determine key managerial tasks.

 Assign tasks to various parts of the organization

 Delegate authority relationships and establish methods for co-ordination

 Allocate resources to SBUs and departments

 State policies as guides for action

 Clarify goals of various individual managers

 Operationalise ways to measure performance

 Build MIS to provide adequate and timely data useful for business evaluation

 Make provision for a reward system reinforcing desired behavior

  Develop manager talent and educate managers in values and styles of the organization

 Regularly ascertain adequacy of control mechanisms

 Evaluate results, assess gaps and provide feedback.

Organizations successful at strategy implementation effectively manage six key supporting

factors:

1. Action Planning
2. Organization Structure
3. Human Resources
4. The Annual Business Plan
5. Monitoringand Control
6. Linkage

Action Planning

First, organizations successful at implementing strategy develop detailed action plans...

chronological lists of action steps (tactics) which add the necessary detail to their strategies. And
assign responsibility to a specific individual for accomplishing each of those action steps. Also,
they set a due date and estimate the resources required to accomplish each of their action steps.
Thus they translate their broad strategy statement into a number of specific work assignments.

Organizational Structure

Next, those successful at implementing strategy give thought to their organizational

structure. They ask if their intended strategy fits their current structure. And they ask a deeper
question as well... "Is the organization's current structure appropriate to the intended strategy?"

We're reminded here of a client we worked with some years ago. The company was
experiencing problems implementing its strategy calling for the development of two new
products.

The reason the firm had been unable to develop those products was simple... they had
never organized to do so. Lacking the necessary commitment for new product development,
management didn't establish an R&D group. Rather, it assigned its manufacturing engineering
group the job of new product development... and hired two junior engineers for the task. Since
the primary function of the manufacturing engineering group was to keep the factory humming,
those engineers kept getting pulled off their "new product" projects and into the role of the
manufacturing support. Result – no new products.
Human Resource Factors

Organizations successful at strategy implementation consider the human resource factor

in making strategies happen. Further, they realize that the human resource issue is really a two
part story. First, consideration of human resources requires that management think about the
organization's communication needs. That they articulate the strategies so that those charged
with developing the corresponding action steps (tactics) fully understand the strategy they're to
implement.

Second, managers successful at implementation are aware of the effects each new
strategy will have on their human resource needs. They ask themselves the questions... "How
much change does this strategy call for?" And, "How quickly must we provide for that change?"
And, "What are the human resource implications of our answers to those two questions?"

In answering these questions, they'll decide whether to allow time for employees to grow
through experience, to introduce training, or to hire new employees.

The Annual Business Plan

Organizations successful at implementation are aware of their need to fund their intended
strategies. And they begin to think about that necessary financial commitment early in the
planning process. First, they "ballpark" the financial requirements when they first develop their
strategy. Later when developing their action plans, they "firm up" that commitment. As a client
of ours explains, they "dollarize" their strategy. That way, they link their strategic plan to their
annual business plan (and their budget). And they eliminate the "surprises" they might otherwise
receive at budgeting time.

Monitoring & Control

Monitoring and controlling the plan includes a periodic look to see if you're on course. It
also includes consideration of options to get a strategy once derailed back on track. Those
options (listed in order of increasing seriousness) include changing the schedule, changing the
action steps (tactics), changing the strategy or (as a last resort) changing the objective.

Linkage - The Foundation for Everything Else

Many organizations successfully establish the above five supporting factors. They
develop action plans, consider organizational structure, take a close look at their human resource
needs, fund their strategies through their annual business plan, and develop a plan to monitor and
control their strategies and tactics. And yet they still fail to successfully implement those
strategies and tactics. The reason, most often, is they lack linkage. Linkage is simply the tying
together of all the activities of the organization...to make sure that all of the organizational
resources are "rowing in the same direction."

It isn't enough to manage one, two or a few strategy supporting factors. To successfully
implement your strategies, you've go to manage them all. And make sure you link them together.

Strategies require "linkage" both vertically and horizontally. Vertical linkages establish
coordination and support between corporate, divisional and departmental plans. For example, a
divisional strategy calling for development of a new product should be driven by a corporate
objective – calling for growth, perhaps –- and on a knowledge of available resources –- capital
resources available from corporate as well as human and technological resources in the R&D
department.

Linkages which are horizontal –- across departments, across regional offices, across
manufacturing plants or divisions – require coordination and cooperation to get the
organizational units "all playing in harmony." For example, a strategy calling for introduction of
a new product requires the combined efforts of – and thus coordination and cooperation among –
the R&D, the marketing, and the manufacturing departments.

Role of Strategists in Strategy Implementation:

Resource allocation and Setting policies and administrative

Strategists organizing systems
SBU top managers Decide for their units Decide for their units
Corporate top managers Decide Decide

Corporate planners Advise Advice and help manage planning

system
Board of Directors Approves major changes Rarely involved

Consultants Occasionally hired to advise Often hired to advice

Why Strategy Implementation Is So Difficult:

All managers find implementation the most difficult aspect of their jobs – more difficult than
strategic analysis or strategy formulation. U.S. managers spend more than $10 billion annually
on strategic analysis and strategy formulation.

The ability to implement strategies is one of the most valuable of all managerial skills.
Managers intent on implementing strategy must:
  Master systems thinking to be able to coordinate a broad range of interconnected efforts
aimed at transforming intentions into action, and
 Take care of the factors impeding strategy implementation.

Matching Organization Structure to Strategy:

 Pinpoint the key functions and tasks requisite for successful strategy execution

 Understanding the Relationships among Activities

 Grouping Activities into Organization Units

 Determining the Degree of Authority and independence to Gave Each Unit

 Providing for Coordination among the Units

 How Structure Evolves as Strategy Evolves: The Stages Model

 Four distinct stages of strategy-related organization structure have singled out:

Stage1 organizations, are small, single-business enterprises managed by one person. The
owner-entrepreneur has close daily contact with employees and each phase of operations.
Most employees report directly to the owner, who mates all the pertinent decisions regarding
mission, objectives, strategy, and daily operations.

Stage II organizations differ from Stage I enterprises in one essential aspect: an increased
scale and scope of operations force a transition from one-person management to group
management.

Stage III consists of organization whose operations, though concentrated in a single field or
product line, are scattered over a wide geographical area and large enough to justify having
geographically decentralized operating units. These units all report to corporate headquarters
and conform to corporate policies, but they are given the flexibility to tailor their unit's
strategic plan to meet the specific needs of each respective geographic area. Ordinarily, each of
the geographic operating units Of a Stage III Organization is structured along functional lines.

The key difference between Stage II and Stage III, however, is that while the
functional units of a Stage II organization stand or fall together (in that they are built
around one business and one end market), the geographic operating units of a Stage III firm can
stand alone (or nearly so) in the sense that the operations in each geographic unit are not
dependent on those in other areas. Typical firms in this category are breweries, cement
companies, and steel mills having production capacity and sales organizations m several
geographically separate market areas.
Stage IV includes large, diversified firms decentralized by line of business. Typically, each
separate business unit is headed by a general manager who has profit-and-loss responsibility and
whose authority extends across all of the unit's functional areas except, perhaps, accounting and
capital investment (both of which are traditionally subject to corporate approval). Both business
strategy decisions and operating decisions are concentrated at the line-of-business level rather
than at the corporate level.

Resource-allocation:

Resource allocation is used to assign the available resources in an economic way. It is

part of resource management. In project management, resource allocation is the scheduling of
activities and the resources required by those activities while taking into consideration both the
resource availability and the project time.

The plan has two parts: Firstly, there is the basic allocation decision and secondly there
are contingency mechanisms. The basic allocation decision is the choice of which items to fund
in the plan, and what level of funding it should receive, and which to leave unfunded: the
resources are allocated to some items, not to others.

There are two contingency mechanisms. There is a priority ranking of items excluded
from the plan, showing which items to fund if more resources should become available; and
there is a priority ranking of some items included in the plan, showing which items should be
sacrificed if total funding must be reduced.

Resource allocation is a major management activity that allows for strategy execution. In
organizations that do not use a strategic-management approach to decision making, resource
allocation is often based on political or personal factors. Strategic management enables resources
to be allocated according to priorities established by annual objectives. Nothing could be more
detrimental to strategic management and to organizational success than for resources to be
allocated in ways not consistent with priorities indicated by approved annual objectives.

All organizations have at least four types of resources that can be used to achieve desired
objectives:

financial resources, physical resources, human resources, and technological resources.

Allocating resources to particular divisions and departments does not mean that strategies will be
successfully implemented. A number of factors commonly prohibit effective resource allocation,
including an overprotection of resources, too great an emphasis on short-run financial criteria,
organizational politics, vague strategy targets, a reluctance to take risks, and a lack of sufficient
knowledge. Managers normally have many more tasks than they can do. Managers must allocate
time and resources among these tasks. Pressure builds up. Expenses are too high. The CEO
wants a good financial report for the third quarter. Strategy formulation and implementation
activities often get deferred. Today's problems soak up available energies and resources.
Scrambled accounts and budgets fail to reveal the shift in allocation away from strategic needs to
currently squeaking wheels. The real value of any resource allocation program lies in the
resulting accomplishment of an organization's objectives. Effective resource allocation does not
guarantee successful strategy implementation because programs, personnel, controls, and
commitment must breathe life into the resources provided. Strategic management itself is
sometimes referred to as a "resource allocation process."

The Crucial Role of Resource Allocation in the Strategy Development Process:

Organizational Context:

Although organizational context has many dimensions, three of them are particularly
powerful filtering mechanisms in almost every organization’s resource allocation process. The
first is the structure of the company’s income statement. This determines the gross profit
margins that the company must earn to cover overhead costs and earn a profit. Most managers
have a very difficult time according priority in the resource allocation process to innovative
proposals that will not maintain or improve the organization’s profit margins. The effect that
such a filtering mechanism can have on a company’s strategy possibilities can be profound. 3M
Corporation, for example, is one of the most innovative companies in modern history, in terms of
its abilities to apply its core technological platforms to an array of market applications. It’s
insistence that all new products meet relatively high gross margin targets, however, has focused
the company into a vast array of small, premium product niches, and has prevented all but a few
of its new products from becoming large mass-market businesses.

A second important element of organizational context is the short tenure in a given job
that is typical in the career path of high-potential employees. Management development systems
in most organizations move high-potential employees into new positions of responsibility every
two years or so, in order to help them master management skills in various parts of the business.
The effect of this practice, however, is to limit the payback time on investment proposals that
most managers can enthusiastically endorse. Aspiring managers will instinctively accord priority
to efforts that will pay off within the typical tenure in their jobs, in order to produce the
improved results required to earn attractive promotions. The short-sighted investment horizons
of results-oriented managers, which typically are attributed to Wall Street’s demands for near-
term profit improvement, are in fact deeply embedded in the management development
processes of most good companies.

A third example of the forces comprising the organizational context is the tolerance of
failure in the organization’s culture. Many senior managers verbally assert that they want
employees to take risks. But backing a new product development effort that fails typically puts a
blemish on an aspiring junior manager’s track record that limits his or her potential for
promotion into the ranks of senior management. Hence, innovative proposals that target well-
documented needs of existing customers in established markets almost always win in the
competition for resources against disruptive proposals to create new markets. Similarly,
innovations that leverage the organization’s existing resources and capabilities will nearly
always trump resources from riskier proposals that require the development of new capabilities.

Structural Context:

Structural factors in a company’s environment also affect the filtering criteria that managers
employ in the resource allocation process. For example, good managers always feel pressure to
maintain or accelerate their companies’ growth rate because their stock price is predicated upon
growth. This means that as a company grows, it must bring in larger and larger pieces of new
business each year. Hence, as a company becomes larger the size threshold that new product or
service opportunities must meet in order to get through the resource allocation filter grows.
Opportunities which at one point were energizing in a smaller company’s resource allocation
process get filtered out as “not big enough to be interesting” in a larger company.

company’s customers likewise exert a powerful influence on the sorts of initiatives that
survive the resource allocation process. For example, one of the organizations we have studied
is the European arm of a major consulting firm. In 1996 it adopted a strategy that consisted of
two elements. The first was to drop small clients, and focus on consulting for the European
operations of the “Global 1000” – and in the process, to increase the average size of client
engagement from $800 thousand to $10 million. The second element of the strategy was to
become the European leader in e-commerce consulting. By 1999 the firm had implemented the
first element of the strategy flawlessly, and saw its profits skyrocket as a result. However, not a
single one of its engagements in 1999 related to e-commerce. Why? The world’s 1000 largest
corporations, in general, were among the slowest to pursue e-commerce strategies. In the words
of one of the managers, “In retrospect, it is very difficult to build a business around a service
offering that none of your customers want.” Although managers think that theycontrol the
resource allocation process, in reality, customers often exert even more powerful de facto control
over how money can and cannot be spent. This is a major reason why disruptive technologies
are so difficult for companies to confront successfully.

Competitors’ actions likewise powerfully influence what managers must push through the
resource allocation filter. If a competitor threatens to steal customers or growth opportunities
away from a company, managers have almost no choice but to respond.

Because the factors in the organizational and structural context often exert such a
powerful directive influence on the investments that can emerge from its resource allocation
process, in some instances actual strategy can be shaped far more powerfully by these forces than
by the intentions of senior managers themselves